Apples Xserve to Face Tough Sell

Will Xserve's strong performance capabilities, low licensing fee and Unix-based operating system be enough to lure in enterprise customers? Not likely, analysts say.

Apple Computer Inc. will soon start shipping its first rack-mounted server, initially marketing it to existing Mac customers, but with long-term hopes that its Unix-based system will eventually win over skeptical enterprise users that have avoided the company so far.
But despite the dual-processor Xserves impressive features and the stability of the Unix-based operating system, industry insiders and analysts said, the odds are stacked against the company.

"Would I be biased against Apple? Yes, to be honest, I would," said Brian Potts, network manager for Associated Food Stores Inc., in Salt Lake City. Potts views reflected the opinion of several system managers contacted by eWEEK.

"Were always willing to look at competitive products, but we have a tendency to go with established players, such as Dell, Hewlett-Packard, IBM and Unisys," Potts said. "You want a company that you know will be there tomorrow, and that has a solid history of service and support."
A Unix reseller agreed that Apple, based in Cupertino, Calif., faces an uphill battle.
"Theyve arrived pretty late in the game," said John Sheaffer, CEO of Sysix Cos., which sells Unix-based systems by Hewlett-Packard Co., IBM and Sun Microsystems Inc. "Its a very tough channel to compete in. And while Im sure the Apple brand may prove attractive to their existing customers, its not highly regarded among business customers."

At first glance the dual-processor Xserve, unveiled in Mayand set to begin shipping later this month, appears to offer high performance at a relatively low price, with single CPU configurations starting at $2,999 and dual CPUs available at $3,999.
The Xserves thin 1U (1.75 inch) chassis is also the most popular selling rack-mount design. Despite its small size, the server can pack a punch, handling up to two 1 GHz PowerPC G4 processors, 2GB of DDR SDRAM, 480GB on four hot-plug ATA/100 drives, and dual Gigabit Ethernet ports.
"This is the fastest Mac architecture weve ever built," Apple CEO Steve Jobs said at the servers unveiling.
And while benchmarks detailing the systems capabilities have yet to be released, analysts dont doubt the Xserve can outperform server offerings of more established server makers.
"This system has a lot to offer at a price most competitors cant touch," said Peter Glaskowski, an analyst with In-Stat/MDR, in Sunnyvale, Calif. "Any enterprise that has Mac clients is going to find this unusually attractive."
The Xserve also comes with an unlimited client license for its Unix-based OS X operating system, introduced in March 2001, offering customers a potential savings of thousands of dollars per rack of servers when compared to fees tied to Microsoft Corp.s Windows OS.
Apples OS X also is designed for cross-platform integration, and can work with various platforms, including Windows and Linux. By offering such features, Apple is clearly looking to attract the interest of non-Mac customers.
"We think we are probably the best citizen in the data center," said Alex Grossman, Apples director of server and storage marketing. "We are the most compatible. We can serve not only Macintosh clients, but Windows, Linux and Unix clients just as well."
While Apple contends its making "a very humble" entrance into the rack-mounted server market—marketing the system into the education and graphic creation markets where its enjoyed success—Grossman said the company is openly optimistic the server will gain acceptance among enterprise customers.
"For a parallel, you can look at the rise of Linux," he said. "While it was, of course, more of a grassroots movement than Apples effort, it gained acceptance because users wanted an open standard, like what OS X Xserve offers, and gives them a low-cost deployment option, just like we do with our unrestricted client licenses. People are willing to try a new way of doing things."
Apples promotional material also positions the Xserve as an alternative to more popular selling brands by emphasizing the system delivers "performance rivaling much more expensive servers from Dell, IBM and Sun."
The computer makers push to tout its server to non-Mac users is understandable given Apples small market share. Last year, Apple garnered only 3.8 percent of U.S. personal computer sales, according to the Gartner Group. The picture is even worse worldwide, with Apples share falling to 2.5 percent in 2001, down from 2.8 percent a year earlier.
Seeking to boost those numbers, Apple is entering one of the hottest segments of the enterprise market, rack-mounted servers.
Last year, rack-mounted servers accounted for about 34 percent of server units shipped, according to International Data Corp., an impressive number given that major vendors only began selling rack-optimized servers in 1999. And while sales of servers declined 19 percent last year, factory revenue from those sales still totaled $50 billion.
But will the Xserves strong performance capabilities, attractive licensing fee and Unix-based operating system be enough to lure in enterprise customers? Not likely, analysts say.
"I dont imagine theyll attract anyone other than their existing users," said Rob Enderle, an analyst with Giga Information Group. "While the Xserve does have quite a bit to offer, its not likely to have enough of a price-performance advantage to displace entrenched players like Sun, IBM, HP and Dell."
In addition, Apples new server platform lacks some features that enterprise customers have come to expect. For example, the Xserve utilizes ATA hard drives, rather than SCSI drives, which are considered faster and more stable, and are commonly found in business-critical servers. The initial version of the Xserve also lacks some hot-swappable components, such as fans, as well as redundant power supplies.
Looking at software, Apple has secured support from several leading players, including Oracle Corp. and Sybase Inc., who will port their database software to OS X, and HP will offer a version of OpenView on the platform. Nevertheless, Xserve is not compatible with other popular applications, such as software from Tivoli, Computer Associates International Inc. and HP management framework.
Overall, Apple deserves credit for developing a well-designed high-performance rack server on a stable Unix operating platform, analysts said, but they hold out little hope that the company can finally attract mainstream corporate customers.
"I think the most important thing here is that Apple is finally addressing its customers needs," Enderle said. "While the Xserve certainly appears to be a solid product that Im sure will offer impressive performance, I seriously doubt youll see non-Mac users adopt it."
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